It might go down in the history books of Silicon Valley. When Silicon Valley’s most famous bank, founded nearly 40 years ago, was injured so severely that it risked going up in flames if it wasn’t rescued by another bank. in a day.
We don’t yet know who that “white knight” will be, but there’s a lot of talk going on right now about who’s going to step in and buy Silicon Valley Bank, an institution whose stock is down about 80% or more. After hours trading from where it was earlier yesterday. why? Not because the bank is falling apart at the seams. Instead, it completely confused some important messages at the worst possible time.
Friends, this is a so-called own goal.
Silicon Valley Bank lost $1.8 billion on the sale of its Treasury and mortgage-backed securities investments as interest rates rose. Banks are also working to reduce customer deposits, given that their customer base, primarily startups, now have much less money to park at financial institutions.
Due to this location, we decided to raise a large amount of money to protect our business. The plan is to sell $1.25 billion of common stock to investors, $500 million into convertible preferred stock, and $500 million of common stock to his private equity firm, General Atlantic, in a separate transaction. bottom. The obvious goal was to show that banks were conservative and funded for stability.
Ah, but how it backfired, and who might be surprised.
You might imagine someone at Silicon Valley Bank would stop to think, “Well, today might not be the right time to declare that we’re strengthening our balance sheet.” Obviously they didn’t. Instead, at the close of the market yesterday, they issued a convoluted press release that was received almost comically badly. and are now nervously fighting over what to do.
Not bad for Silicon Valley Bank’s estimated 6,500 employees or CEO Greg Becker, who had to hop on a Zoom call late this morning to trick panicked customers into thinking it was just a small news release. It doesn’t matter.
It was not a safe performance. “Keep calm, because that’s what matters,” Becker told the countless viewers who weren’t given the chance to ask questions. Silicon Valley Bank said, “Venture He’s a longtime supporter of yours, a community enterprise of capital. So make sure you don’t panic,” he added, noting that none of the heads of their banks I said something I didn’t want to hear from
One customer, who asked not to be named, later said: Don’t you panic? I’m panicking watching your broadcast now. ”
What happens from here is the question, and given how quickly bank stocks are declining, something needs to be done urgently. I reached out to General Atlantic to see if he plans to invest $500 million in Silicon Valley Bank common stock (no response yet).
We reached out to Silicon Valley Bank itself and repeated points from Becker’s earlier story. Silicon Valley Bank was/trying to simply “strengthen its financial strength.” It is “well-capitalized,” has a “high quality and liquid balance sheet,” For example, it boasts a leading capital adequacy ratio.
Again, banks like Goldman Sachs are betting on showing up at the table to win the deal of a lifetime and keep Silicon Valley Bank employees from running for an exit. understand.
In the meantime, anyone working in investor relations may want to start looking for a new job.
Perhaps Becker should have done more to diversify the bank’s business — a problem that has been lurking in the dark for years — and to warn traders and hedge funds about the current currency depreciation. It provided a fresh new way to deal with it. startup economy. (Becker is huge chunks of his own stock in January.)
His only hope now is to convince the bank’s remaining customers that all is well and hope they buy it.
That window will close immediately. Founders Fund and others reportedly advised their portfolio companies to withdraw their funds today. even VCs show your support Banks must have personally done the same so that portfolio companies did not risk losing valuable capital.
“With one exception, we have sufficient liquidity to support our clients,” Becker said in an earlier Zoom call. “If everyone is arguing that SVB has a problem, it’s a tough one.”
